But he also said the TSE was holding back until the Japanese government sorted out its policy on curbing emissions. Japan is the world's fifth-biggest emitter of greenhouse gases.

The government has set an ambitious goal to cut emissions by 60-80 percent from current levels by 2050 but still hasn't decided how to achieve this. The environment ministry has said it could be through a carbon tax, an emissions cap-and-trade scheme similar to Europe's, or both.

But big business is opposed to a mandatory cap-and-trade system, saying it would hurt their competitiveness, further clouding the picture.

"We're studying details so that we'll get ready to go at any time from next year," Ito said in an interview for Reuters' global environment summit.

"Beyond that, we'll make a business judgement, taking into account of market circumstances at that time," he said, noting the current financial crisis was a factor to consider.

He said it was crucial for the TSE to meet the competition head on, citing an estimate by Patrick Birley, head of the European Climate Exchange, that the global CO2 market would likely grow to US$3 trillion a year by 2020 from more than US$60 billion in 2007.

"We should be ahead of rivals in the same time zone," Ito said. Other regional centres, including Tianjin of China, are preparing to take advantage of one of the fastest-growing markets.

British carbon credit exchange operator Climate Exchange said in July it had signed a pact with Chinese National Petroleum Corp. Assets Management and Tianjin City to begin an emissions trading business in China.

For the moment, though, the TSE needed a clearer signal from the government on how it will fight emissions in the next decade.

UNDER PRESSURE

Japan is coming under pressure from developing nations in UN-led climate talks to do more to curb its greenhouse gas emissions, not least because it is above its Kyoto target.

Negotiations reach a climax in Copenhagen, Denmark, at the end of next year aimed at agreeing a replacement for the Kyoto Protocol that would hopefully bind all nations to emissions curbs from 2013.

At present, Japan is only one of 37 industrialised nations that are bound under Kyoto to meet emissions curbs from 2008 to 2012, when the pact's first phase ends. Developing nations are excluded and have said it was unfair for them to commit to emissions curbs from 2013 unless rich nations pledge to do more.

Japan is obliged to cut greenhouse gas emissions by 6 percent in 2008-2012 from the 1990 levels. But as of 2006, its emissions were 6 percent above 1990 levels.

The Japanese government and big corporates have been active in buying UN carbon offsets called CERs to try to help the nation meet its Kyoto target.

But the powerful Keidanren business lobby has resisted mandatory emissions targets as well as emissions trading akin to that already in place in the European Union.

The government has created a voluntary market to encourage small business to cut emissions. But the scheme with subsidies paid for energy conservation spending has had limited success.

In a further step to lure business towards carbon trading, a trial of a national market will be launched later this month to trade surplus credits based on Keidanren's voluntary emission caps. The TSE does not take part in the trial scheme.

"The potential of an emissions market in Japan is huge in light of its ambitious commitment in the long term," Ito said, referring to the government's emissions cut target of 60-80 percent by mid-century. (For summit blog: http://summitnotebook.reuters.com/) (US$1 = 101.46 Yen) (Reporting by Risa Maeda; Editing by David Fogarty)